1.1 Flashcards
(20 cards)
What is the basic economic problem?
Scarcity- limited resources, but unlimited wants.
What is a free market economy?
Market forces of demand and supply that determine the allocation of resources. No interferences from outside agencies, such as the government.
What does the allocation of resources refer to?
The way factors of production and raw materials are used in the production of goods and services.
What are the factors of production?
Land- natural resources eg raw material
Labour- human input in physical and intellectual terms eg employees
Capital- technologies and equipment used eg machinery / infrastructure (capital is scarce)
Enterprise- innovation and creativity applied. People who do this are entrepreneurs.
What is an opportunity cost?
An opportunity cost is an opportunity lost! The cost of the next best alternative has been sacrificed. Eg a business investing into one product; the opportunity cost will be the potential profit foregone by not going with a different product.
What is a trade off?
A situation when having more of one thing leads to having less of another. Linked to the concept of opportunity cost. (Page 2 for examples)
What are business objectives?
Goals that a business will set out to achieve.
What are the main business objectives and reasons for them?
Profit maximisation- firms determine price and output levels which returns the greatest profit
Sales maximisation- firms sell a much a possible without making a loss NFPO’s eg charities may do this. Also important in very competitive markets.
Satisficing- firms don’t seek max profit or sales, but good enough to ensure survival
What are other business objectives?
Survival- key objective especially for adverse / hostile conditions eg recession / intense competition
Market share- expand & gain a certain share of the market
Cost efficiency- especially if facing tough trading conditions and is in danger of making a loss
Return on investment- how well assets can be used to generate profit (affects ability of firms to repay loans
Employee welfare- adequate pay & working conditions
Social objectives- NFPO’s use these; pursuing social, environmental or ethical goals
Customer satisfaction- Source of competitive advantage
Why do businesses set objectives?
Creates a sense of direction, and a focus for decision making
Yardstick to measure success and failure
Encourages a common purpose in workers / motivates them
What are motives?
Driving forces behind entrepreneurs actions
Profit / non profit motives
What are stakeholders?
Individuals or groups with a direct interest in the activities / performances of a business.
Who are internal / external stakeholders?
Internal: employees, managers, owners
External: suppliers, society, government, customers, local community
Who are economic agents?
All those who take decisions to buy, spend, produce, sell, or in any way affect how resources are used. Usually customers / suppliers.
What are shareholders?
Part owners of a business who have played a part in financing the business, or have bought shares from someone els. They receive a dividend in return ie a share of the profit for each year.
Key elements of Shareholder model
Profit maximisation; managers should concentrate on the best interests of the shareholders; if short term profits are desired against long term growth, then this must be worked towards…. This approach has been criticised for being too short term, immediate pursuit of profit is not always in the best long term interests of the business, sometimes UK businesses are thought prone to short termism, meaning decisions are based on short term profitability leading to missed opportunities.
Key elements of Stakeholder model
Managers have a responsibility to take account of the interests of all the Stakeholder groups that are affected- benefits may include: improved image perception by consumers leading to greater sales and increased competitive advantage; staff motivation; closer relationships with suppliers; improved public relations; reputation for reliability and quality.
Stakeholder Vs Shareholder conflict
Eg building a new out of town supermarket might be good for customers,suppliers and shareholders. Local communities may be affected via infrastructure or jobs lost in small high street shops and feel differently. Trade off between these interests: shareholders want to max profits, employees want better pay and conditions, customers want lower prices, gov want tax revenue etc. Need to find a balance.
What is CSR?
Corporate social responsibility is taking decisions in a way that takes into account all stakeholders interests. Treating employees, customers and suppliers fairly, avoiding polluting activities and positively contributing to lives and the local community may be a part of this
Why do businesses have a CSR policy in place?
Genuine desire to behave responsibly; positive brand reputation/ image; conformity; increase sales; improves stakeholder relationships and reduces possible conflicts. Consider how much a business uses CSR policies, and if it’s ethical.
